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A Primer on the FACTA One of Florida's Most Reputable Defense Law Firms

A Primer on the Foreign Account Tax Compliance Act (FATCA)

In 2010, the Foreign Account Tax Compliance Act (FATCA) was passed. It was designed to ensure that U.S. citizens banking internationally could not avoid paying taxes on their income from offshore accounts and assets. In essence, it is a program aimed at uncovering undeclared income hidden by Americans in banks around the world.

Pros and Cons of FATCA

The premise of FATCA seems relatively simple: identify account holders and the dollar value of each account they hold in foreign banks and in certain other assets. That's not hard, right? Well, it depends.

FATCA relies on both the financial infrastructure of the U.S. and partner nations (like Britain, Spain, France, Italy, Germany and others) and as yet untapped information pathways to discover both the identity of foreign account holders and the taxable amount in those same accounts.

Some countries initially balked at the implementation of FATCA because of concern that their existing technologies might be insufficient to enforce the agreement simply because of the manpower and digital space required to discover all of the following information about an American account holder:

  • Identity
  • The account holder's address
  • Account holder's taxpayer identification number or social security number
  • Account numbers
  • The value of assets on the day the information is compiled

If the technological infrastructure is insufficient to comply with FATCA at the present, then there will be costs associated with upgrading it to the type of system that will be able to meet the demands of FACTA. Of course, there are also costs associated with devoting enough staff at foreign banks to gather all the information and relay it to the proper authorities.

Making FATCA More Palatable

A recent agreement by the U.S., U.K., France and Germany aims to make FATCA enforcement a bit easier. The " model intergovernmental agreement" is the basis for a system by which relevant information (like the identity of the account's holder and the amount put into the account) is automatically passed along to the account holder's country of origin.

The agreement is reciprocal in nature, and it allows the information to run both ways, both to the U.S. when the account holder of a foreign account is an American, and from the U.S. when the account holder of an American account is from one of the countries that have adopted FATCA. American tax authorities realize that while FACTA was enacted in 2010, many countries have a long way before they can fully comply with its terms and provide the kind of information the regulation requires, but the IRS is doggedly determined to do all it can in the meantime to ensure that tax evaders "hiding" money in foreign accounts will be caught.

If you or a loved one has questions about the tax impact of foreign accounts - or you are facing an IRS investigation into your funds held in international banks - consider speaking with a skilled tax attorney in your area. Tax attorneys are uniquely qualified to give you guidance about the steps you should take to address your tax responsibilities without overpaying or underpaying.

If the U.S. government learns of unreported offshore accounts from the banks the account holder faces criminal prosecution and harsh civil penalties. Those who have unreported accounts can enter the 2012 Offshore Voluntary Disclosure Program (OVDP) and avoid criminal prosecution and reduce the civil penalties. The 2012 OVDP is not available if the government learns of the account before the account holder applies to enter the 2012 OVDP.

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